Our Research posts are about the latest academic research being done in the School of Economics. This week:

CHINESE FOREIGN DIRECT INVESTMENT IN AFRICA

By Carike Claassen, Elsabe Loots & Henri Bezuidenhout

China’s economic relations with Africa have been gaining a lot of attention recently. China is not only a major trading partner for many African economies, but also an increasingly important investor in Africa. Chinese investment in Africa has been controversial from the outset, since people feel unsure about China’s motives for investing in Africa – what are they investing in, and why?

Moving beyond the Great Wall

Economist Dambisa Moyo commented on this topic in a recent op-ed for the New York Times, entitled “Beijing, A boon for Africa”. In it, Moyo (2012) explains the logic behind China’s increasing investments in Africa: as a growing economy, the Chinese government needs to ensure that resources are available to fuel its economy. Therefore, China needs to acquire arable land, oil and minerals. This is confirmed by our research conducted in 2010, which eventually resulted in an article entitled: Chinese Foreign Direct Investment in Africa. The research focused on Chinese foreign direct investment (FDI) to Africa between the periods 2003 and 2008, and found that agricultural land and oil are indeed important determinants of Chinese investment to Africa. Also of importance is market size, which gives an indication of the fact that China is not engaging solely in resource-seeking FDI with Africa, but in market-seeking FDI as well.

The top recipient countries of Chinese FDI between 2003 and 2008 were South Africa, Nigeria, Zambia, Algeria and Sudan. South Africa received by far the most FDI inflows of African recipients, while Chinese FDI flows generally went to medium and high economic growth countries (once again indicating an interest in market access and expansion), while it was not surprising that oil exporting countries on average received more FDI from China than non-oil exporting countries. With regards to the possible impact of Chinese FDI on African economies, a bi-directional relationship was established between Chinese FDI and African growth, meaning that Chinese FDI does contribute toward higher growth in Africa, but African countries with higher economic growth rates will also attract more FDI from China. The issue of corruption is important in Africa, and critics of China have argued that Chinese investment in Africa is contributing toward increased levels of corruption. Our research found that this is not so – while African countries with high corruption scores do attract more Chinese FDI, Chinese FDI does not cause, or entrench, corruption in Africa.

As China’s investments in and trade with Africa grows, many new opportunities and challenges will emerge. Ultimately, the benefit they hold for Africa will depend on how cleverly our policymakers manage these opportunities.